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on Insurance Economics |
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Issue of 2016‒08‒21
twelve papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Smith, Vincent H.; Glauber, Joseph; Dismukes, Robert |
| Abstract: | A central, but inadequately explored issue with respect to subsidized crop insurance programs concerns the costs of delivering insurance coverage to farmers. This study examines that issue in the context of the heavily subsidized US crop insurance program which has often been put forward as a model for agricultural insurance programs in other countries. US Government programs often rely on private firms to deliver income transfers or services, which then establish their own rent-seeking lobbies, which are shared with input suppliers. This rent dispersion process is examined in the context of the U.S. agricultural insurance industry, which receives as much as one third of the annual subsidies that support the federal crop insurance program. We find that as total payments to insurance companies increased between 2001 and 2009, an increasingly large share of the agricultural insurance industry’s rents accrued to insurance agents, although in markets where insurance companies possessed some oligopsony power, agent payments are smaller. The findings also suggest that the insurance industry (companies and independent agents) would almost surely provide the same service for substantially less than the gross revenues from the subsidies and underwriting gains they received. |
| Keywords: | UNITED STATES, NORTH AMERICA, agricultural policies, subsidies, crop insurance, markets, rent seeking, market power, oligopsony, |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1532&r=ias |
| By: | Fang Yang (Louisiana State University); Mariacristina De Nardi (Federal Reserve Bank of Chicago) |
| Abstract: | Marriage is an institution that also helps insure shocks. Despite this and the prevalence of marriage, very little is known on how effectively marriage insures households against income or health risks and how being married affects labor supply and savings. We develop a framework with both single and married people, in which single people meet partners and everyone experiences labor productivity shocks, medical costs shocks, life span risk, and married people also experience divorce risk. People can self-insure by saving and by choosing their labor supply. We also allow for reversibility of social security and pension payments to the surviving spouse in case of death of one of the spouses and for differential tax treatment of married and single people. In this framework, we study the insurance benefits of marriage, both at the individual and at the aggregate level. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:427&r=ias |
| By: | Conti, Gabriella (University College London); Ginja, Rita (Uppsala University) |
| Abstract: | We present evidence on the health impacts and mechanisms of a large expansion in non-contributory health insurance in Mexico. The Seguro Popular (SP) was rolled out in 2002-2010 across municipalities, providing exogenous variation in access to health services without co-pays. Our intent-to-treat estimates show that SP reduced child mortality by 7% in poor municipalities, saving 861 children/year. The decline is driven mainly by deaths due to preventable causes, such as diarrhea and respiratory infections. We also document an increase in hospital care for children with the same conditions. Our findings have important implications for the ongoing health insurance expansions. |
| Keywords: | health insurance, child mortality, health care utilization, Mexico |
| JEL: | H10 I12 I13 J13 O18 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10122&r=ias |
| By: | Stephane Verani (Federal Reserve Board); Borghan Narajabad (Federal Reserve Board); Nathan Foley-Fisher (Federal Reserve Board) |
| Abstract: | The interaction of worsening fundamentals and strategic complementarities among investors renders identification of self-fulfilling runs challenging. We propose a dynamic model to show how exogenous variation in firms’ liability structures can be exploited to obtain variation in the strength of strategic complementarities. Applying this identification strategy to puttable securities offered by U.S. life insurers, we find that 40 percent of the $18 billion run on life insurers by institutional investors during the summer of 2007 was due to self-fulfilling expectations. Our findings suggest that other contemporaneous runs in shadow banking by institutional investors may have had a self-fulfilling component. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:414&r=ias |
| By: | Deuchert, E.; Eugster, B. |
| Abstract: | Disability insurance systems are widely criticized for their inherent work disincentives. This paper evaluates the effects of a reform of the Swiss DI system that aims to lower pensions for a group of existing DI beneficiaries and introduces an additional cash cliff to the pension schedule. The effects on earnings and employment are zero but the disability degree increases on average by 3 percentage points and 75% of individuals manage to keep their old pension level. We partially identify income and substitution effects employing the principal stratification framework. The income effect ranges from 9 to 20 percentage pints in terms of employment, and 136 to 3,135 CHF (ca. 50% of previous earnings) in terms of earnings. The substitution effect is smaller and suggests that individuals reduce employment by a maximum of 3.7 percentage points and earnings by a maximum of 1,001 CHF (if any). |
| Keywords: | disability insurance; work disincentives; income and substitution effects; partial benefit system; |
| JEL: | C30 I13 J01 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:yor:hectdg:16/21&r=ias |
| By: | Perry Singleton (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); Ling Li (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244) |
| Abstract: | This study examines the dynamic effect of disability on marriage. Data on disability and marriage come from the New Beneficiary Survey, designed to characterize new beneficiaries of the Social Security Disability Insurance Program. Using an event-study model, the study finds that disability onset decreased marriage among beneficiaries, but only at younger ages. The study further examines whether the effect of disability on marriage is due to formation, dissolution, or both, and whether the effect varies by educational attainment and subsequent mortality. The results highlight the importance of marriage selection in the oft-cited relationship between marriage and better health. |
| Keywords: | Marriage selection, marriage formation, marriage dissolution, disability |
| JEL: | J1 I1 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:max:cprwps:190&r=ias |
| By: | Vasilev, Aleksandar |
| Abstract: | This paper describes the lottery- and insurance-market equilibrium in an economy with both private and public sector employment and non-convex labor supply. In addition, when households are constrained to search for jobs only in a certain sector, the framework requires that there should be separate insurance markets: a public- and private sector one, which would pool the unemployment risk of the corresponding group of households. The unemployment insurance market segmentation is a new result in the literature and a direct consequence of the non-convexity of the labor supply in each sector and the sorting effect of the sector-type shock introduced in the model setup. |
| Keywords: | indivisible labor,public employment,insurance,lotteries |
| JEL: | H31 J21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:144532&r=ias |
| By: | Brot-Goldberg, Z.C.; Chandra, A.; Handel, B.; Kolstad, J.T. |
| Abstract: | Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We study consumer responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm which required all of its employees to switch from an insurance plan that provided free health care to a non-linear, high deductible plan. The switch caused a spending reduction between 11.79%-13.80% of total firm-wide health spending. We decompose this spending reduction into the components of (i) consumer price shopping (ii) quantity reductions and (iii) quantity substitutions, finding that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services). We then leverage the unique data environment to study how consumers respond to the complex structure of the high-deductible contract. We find that consumers respond heavily to spot prices at the time of care, and reduce their spending by 42% when under the deductible, conditional on their true expected end-of-year shadow price and their prior year end-of-year marginal price. In the first-year post plan change, 90% of all spending reductions occur in months that consumers began under the deductible, with 49% of all reductions coming for the ex ante sickest half of consumers under the deductible, despite the fact that these consumers have quite low shadow prices. There is no evidence of learning to respond to the true shadow price in the second year post-switch. |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:yor:hectdg:16/15&r=ias |
| By: | Fiala, Oliver; Wende, Danny |
| Abstract: | Natural disasters are increasing in frequency and intensity and have devastating impacts on individuals, both humanitarian and economic, particularly in developing countries. Microinsurance is seen as one promising instrument of disaster risk management, however the level of demand for respective projects remains low. Using behavioural games and a discrete choice experiment, this paper analyses the demand for hypothetical microinsurance products in rural Cambodia and contributes significant household level evidence to the current research. A general preference for microinsurance can be found, with demand significantly affected by price, provider, requirements for prevention and combinations with credit. Furthermore, financial literacy, risk aversion, levels of trust and previous disaster experience impact the individual demand for flood insurance in rural Cambodia. |
| Keywords: | microinsurance,trust,risk,discrete choice experiment,Cambodia |
| JEL: | Q10 Q50 Q54 O10 C25 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuddps:0116&r=ias |
| By: | Johannes Spinnewijn |
| Abstract: | This paper analyzes how biased beliefs about employment prospects affect the optimal design of unemployment insurance. Empirically, I find that the unemployed greatly overestimate how quickly they will find work. As a consequence, they would search too little for work, save too little for unemployment and deplete their savings too rapidly when unemployed. I analyze the use of the "sufficient-statistics" formula to characterize the optimal unemployment policy when beliefs are biased and revisit the desirability of providing liquidity to the unemployed. I also find that the optimal unemployment policy may involve increasing benefits during the unemployment spell. |
| Keywords: | biased belief; unemployment; optimal insurance; moral hazard |
| JEL: | D83 G22 H30 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:59165&r=ias |
| By: | Weinert, Jan-Hendrik; Gründl, Helmut |
| Abstract: | The changing social, financial and regulatory frameworks, such as an increasingly aging society, the current low interest rate environment, as well as the implementation of Solvency II, lead to the search for new product forms for private pension provision. In order to address the various issues, these product forms should reduce or avoid investment guarantees and risks stemming from longevity, still provide reliable insurance benefits and simultaneously take account of the increasing financial resources required for very high ages. In this context, we examine whether a historical concept of insurance, the tontine, entails enough innovative potential to extend and improve the prevailing privately funded pension solutions in a modern way. The tontine basically generates an age-increasing cash flow, which can help to match the increasing financing needs at old ages. However, the tontine generates volatile cash flows, so that - especially in the context of an aging society - the insurance character of the tontine cannot be guaranteed in every situation. We show that partial tontinization of retirement wealth can serve as a reliable supplement to existing pension products. |
| Keywords: | Life Insurance,Tontines,Annuities,Asset Allocation,Retirement Welfare,Aging Society |
| JEL: | D14 D91 G11 G22 H75 J11 J14 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:icirwp:2216&r=ias |
| By: | McGrattan, Ellen R. (Federal Reserve Bank of Minneapolis); Prescott, Edward C. (Federal Reserve Bank of Minneapolis) |
| Abstract: | Many countries are facing challenging fiscal financing issues as their populations age and the number of workers per retiree falls. Policymakers need transparent and robust analyses of alternative policies to deal with demographic changes. In this paper, we propose a simple framework that can easily be matched to aggregate data from the national accounts. We demonstrate the usefulness of our framework by comparing quantitative results for our aggregate model with those of a related model that includes within-age-cohort heterogeneity through productivity differences. When we assess proposals to switch from the current tax and transfer system in the United States to a mandatory saving-for-retirement system with no payroll taxation, we find that the aggregate predictions for the two models are close. |
| Keywords: | Taxation; Retirement; Social Security; Medicare |
| JEL: | E13 H55 I13 |
| Date: | 2016–08–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:534&r=ias |